Offshore bank licences

A great many publications, including international magazines, newspapers, and
even in-flight airline magazines contain advertisements that read "Offshore
banking licences for sale".

Whatever the jurisdiction, whoever the promoter, whatever the class or cost,
you will be told how owning an offshore bank is a one-step procedure that will
dramatically alter your financial life for the better: total privacy and sky-high
profits within reach!

The highest priest of this thinking is one Jerome Schneider -- a guy who has
made a living out of publishing racy offshore books for the uninitiated and
selling bank licences to all and sundry by promising them the earth.

The reality is somewhat different. If it's too good to be true, it probably
is, and you ought to think carefully before taking such a major step as purchasing
a bank.

Undoubtedly, there are very real benefits arising from the ownership of an
offshore bank; it can be a very powerful business vehicle. However, it is not
suited for everyone as the promoters of banking licences would have you think.

Banks for $10,000?

During the 1980's and early 1990's, it was possible to purchase a banking licence
in places such as Montserrat for a few thousand dollars and with little or no
regulatory control. Those days are gone.

Most recently Montenegro -- formerly a part of Yugoslavia -- tried to jump
on the band wagon and started offering the same laissez-faire attitude and low
cost (about $10,000) banking licences. It didn't last long.

No more

Nowadays, you have to be ready to deal with all the regulatory hurdles that
have been erected in recent years to discourage the widespread ownership of
so-called "shell banks". You will also be expected to capitalise your
bank with at least US$ 500,000.

If you are serious about ownership of an offshore bank, you -- or your nominees
-- should also be prepared to wade through some serious red tape.

Amongst others, the following is needed:

References concerning your financial reputation;

Audited net worth;

References concerning your personal reputation;

Education record;

Employment record;

Police clearance;

Business plan.

Applications are considered on an individual basis and experience in the financial
industry is almost always required.

It is questionable whether or not incorporating an offshore bank as a personal
asset protection vehicle is still as viable as it once was. The author of this
article has come across less than five cases over the past two years where he
felt such strategy was justified; it involved very substantial assets in each
case, as well as very particular objectives.

As far as cutting-edge asset protection is concerned, a privately-owned insurance
or reinsurance company brings many of the advantages of a shell bank, whilst
being a less-regulated and less-expensive option.

See also Uruguay
and Brunei as profiled in
our guide to alternative corporate tax havens.
Both offer offshore banking licences.

On the other hand, do not be put off if you have serious intentions to run
an offshore bank as a business enterprise; just remember that the formation
of a bank calls for a fair degree of determination and patience on your part.

Let us leave this subject with the thought that all things are possible if
you know how to approach them.

Nostro accounts:
The burning issue

A common problem for owners of shell banks after incorporation is obtaining
correspondent bank accounts, especially in US Dollars.

United States banks -- including US branches of foreign banks -- are under
increasing pressure not to hold nostro accounts for smaller, privately-held
offshore banks.

One of the initiatives worth noting is a February 2001 report entitled "Correspondent
Banking: A Gateway for Money Laundering". The report was placed before
the US Senate by Democrat Carl Levin; it argued that by providing correspondent
accounts for offshore banks, US banks open the country's banking system to abuse
by money launderers.

The emergence of the Euro has offered an alternative, as has the practice of
private agreements between banks with existing nostro accounts providing services
for shell banks.